For 50 years, consumers in Bangalore thronged Fatima Bakery to buy its famous cakes, kal-kals (a savoury deep-fried snack) and sannas (a steamed rice dish fermented in toddy.) Lately though, dwindling consumers have forced the bakery, run by the same family for a second generation, to diversify, of all things into pressure cooker repairs, servicing of gas stoves and fixing of malfunctioning rice cookers.
Over in Noida, outside the nation’s Capital, Pramod Gupta, owner of Anjali Stores, is cutting his profit margins on everything from soap to sugar, and offering discounts to hang on to what were regular shoppers.
A stone’s throw away, Vinod Kumar Verma’s tiny three-foot by five-foot vegetable store is fighting for its life. He used to sell produce worth Rs600 a day, but sales are now down to about Rs300, he says.
In the last few months, there has been a lot of debate in the country over what could happen to small retailers and mom-and-pop entrepreneurs when large companies enter the retail sector with thousands of branded stores that are bigger, often cleaner and pervasive, as well as cheaper to shop at, for most daily household products.
India, with 11 shops per 1,000 people, already has the largest density of shops per population in the world, with an estimated 15 million shops, mostly single-store fronts, often cramped, expensive and with limited choices. But they also employ millions; so, it’s for good political reasons that Sonia Gandhi, head of the ruling Congress party, recently weighed in on the issue by asking Prime Minister Manmohan Singhto carefully study it.
The government promptly enlisted the Indian Council for Research on International Economic Relations, a New Delhi think tank, to study the impact of organized retailers on small shopkeepers. That study is expected to be completed in about five months.
Rather than wait that long, Mint set out to get a feel for what might already be happening in the country on the retail front. In Part II of our series on Saturday, we will also look at wholesalers so as to gauge what impact, if any, organized retail is having on the small entrepreneur.
Which brings us back to Verma and the vegetable stall that he operates a couple of hundred metres away from Subhiksha, a discount store operated by a Chennai-based retail chain. Today, Verma is all but hemmed in, between Subhiksha and Reliance Fresh, a new grocery outlet from Reliance Industries, India’s largest listed conglomerate. And things are about to get worse, he says, as India’s biggest retailer, Pantaloon Retail (India) Ltd, is opening its store in coming weeks.
“Sometimes there is hardly any sale as my bigger clients, who would purchase vegetables for Rs100-150, go to Reliance,” says the 23-year-old Verma. “I am left with clients who buy in small quantities for Rs10-15.”
Verma’s story is already being echoed by many small retailers across the country. Even as branded and organized retail is just starting to take off, smaller retailers in many Indian cities are already starting to see a fallout, as regular customers simply walk past, lured by low prices, more variety, better packaging and an overall pleasant and convenient shopping ambience.
Gurgaon-based retail consultancy firm Technopak Advisors says Indian and foreign companies will spend up to $25 billion in the next four years on modern retailing. Reliance Retail alone, that operates the Reliance Fresh stores next to Verma’s vegetable shop, plans to invest up to $5.5 billion by 2011 to open thousands of stores ranging from grocery chains to hypermarkets. Bharti Enterprises, which is better known as India’s largest mobile-phone company, plans to invest up to $2.5 billion to open grocey stores to hypemarktes nationwide starting next year.
And India’s largest listed retailer Pantaloon said it has plans to invest $1 billion over the next year.
While profit margins are slim—often under 4% overall, there is plenty of money in sheer volumes and scale. And that’s what has prompted some of India’s largest business groups—the Tatas, the Aditya Birla Group, Bombay Dyeing, in addition to many others—to jump on the retail bandwagon. Not to be excluded from a burgeoning market, some of the world’s largest retailers, such as Wal-Mart Stores Inc., Metro AG, Tesco Plc. and Carrefour SA, are either in the market or in talks to find ways to tap into the wallets of the 200 million people who make up India’s middle class.
For years, Indians have shopped for groceries and fresh produce at neighbourhood stores. While dry goods, or groceries, are usually sold from small shops, vegetables are predominantly sold out of makeshift stalls with no roofs or shelves. Fresh produce is usually stacked in baskets and the unsold produce is given away at throwaway prices because the vendors have no cold storage to stock them.
But a way of life is about to change. From a mere 3% of a $300 billion retail market in India, organized retailing is set to explode—climbing to 16% in by 2011, according to Technopak Advisors. And that is only the beginning. Organized retail’s market share is 85% in the US and already some 20% in China.
Many of the family-owned and run shops, and its owners, are finding that this expansion is coming at their expense.
“Its like the big crocodiles swallowing smaller fish,” said Krishan Aggarwal, owner of Mahalaxmi General Store in Atta Market of Noida, whose sales are down almost 25% this year as customers turn to bigger stores. “There is no doubt that we might have to change the trade in the next one year… its 100% sure.”
Take MK Ahmed Stores, a grocery chain in Bangalore that built a loyal clientele on home delivery of groceries to households with working women. It has recently started stocking Pringles wafers, Ferrero Rocher chocolates and has a gift section to try and compete with stores that are increasingly drawing its young and upwardly mobile clients. But still, Ahmed Stores is unable to keep up with even the likes of Nilgiris, which has morphed into chain of 36 outlets in 15 cities.
“Bangalore has moved on from small neighbourhood stores very quickly to adopt the supermarket and mall culture,” said V.F. David, owner of Fatima Bakery.
To be sure, the overall retail pie is expanding rapidly and organized retailers point out that there is room for both traditional as well as modern retailers to co-exist. Bharti officials, for example, say India’s overall retail market is expected to more than double to $637 billion by 2015 and almost 80% or $523 billion of market share will be still be with the small retailers.
But, “once large chains establish their supremacy over the supply chain, the bargaining power of small traders is sure to get squeezed,’’ says leader of Communist Party of India (Marxist), Nilotpal Basu. “This will have an adverse impact on employment as much as prices for the common man. That’s because, whatever happens initially, monopolies can eventually get created and prices will rise.’’
Gibson Vedamani, chief executive of the Retailers Association of India, a group representing the country’s modern store owners, has an entirely different take on the issue.
“Why should there be a threat? Unlike in the West, India has different strata of consumers—there is room for everyone,” he says. “The (mom-and-pop) stores, which are indifferent to value for consumers, indifferent to services and indifferent to the quality of products, could go out of business. But not all. As far as organized retailing is concerned, we have just touched the tip of the iceberg in India.”
Indeed. Consider the Vishwanathans, who live in Tollygunge, an upmarket neighbourhood in Kolkata. While they have shopped only in their nearby market, now they make it a point to visit Pantaloon’s Big Bazaar, some 10km away from their residence, once a month. But with a new store set to open even closer, just a 10-minute drive, they are ready to shift loyalties.
“Once Big Bazaar comes to town, we will be able to get better bargains and also avail bigger discounts than the one we get currently from our neighbourhood grocery store,” says Usha Vishwanathan, a 42-year-old working parent. She says she will visit Big Bazaar for most of her monthly household requirements and visit the nearby grocery store just for small items and unanticipated buys.
Much of the shift is happening simply because of better prices that the large stores can offer to consumers on most items. For example, a Reliance store in Noida is selling a 10kg bag of Aashirvad flour for Rs145. Nearby, 36-year-old Aggarwal, who has been running a small grocery store with his brother for eight years, says his cost of buying the same bag from a wholesaler is more than what Reliance is selling it. “How can I sell it for the same price?” he asks. “They can afford it... because they lift 20-30 trucks of the same product from the manufacturer and get it very cheap.”
But what is alarming to the small retailer is actually good news for the consumer. In Tamil Nadu, home to some of the early organized retail stores such as Spencer’s, sellers of vegetables and fruits are crying foul, despite having weathered home-grown retailers, because of the proliferation of organized retail stores.
But Pirya, a Chennai consumer who only gave her first name, says she has been able to save of up to Rs50 every month on her monthly vegetable-budget of Rs500 by buying at Reliance Fresh. Moreover, “I get a lot of new varieties in Reliance Fresh which I have not tried before,” she said. She still buys her fruit from smaller shops because sometimes it’s still cheaper there.
But not all small fruit sellers are taking comfort from this. Over in Tiruvanmiyur, near a Reliance Fresh store in south Madras, there are about 15 fresh-produce vendors. K. Perumal, 57, has been selling fruits in this area for nearly three decades, and is now feeling the pinch of having Reliance Fresh just 100m away. His sales have nearly halved to Rs3,000 a day from Rs5,000–6,000, he says.
In the same marketplace, Shan Bhan Beevi sells vegetables, mostly greens. Her kiosk has been in business for 18 years, but now the going is tough. She says business is down almost 75% since Reliance opened the store. She used to sell 40 small sheaves of spinach, curry leaves, coriander and some mint. Now, she sells only a fourth of that.
“For me, the market is where I live my life,” she says. “This is the only income I depended on to marry off my daughter, ” she said of her child who was born just a year after she started her stall. “Instead, I have accumulated a debt of Rs10,000 in the last three months.”
Industry observers point to other fallout from the spurt in organized retail, including on real estate, as well as availability of employees. “Real estate prices are going through the roof and it is driven by the organized retailers to a certain extent,” says Arpita Mukherjee, a senior fellow at the think tank that is studying the impact on small retailers. “It’s making things difficult for smaller retailers, especially new entrepreneurs who cannot afford the high real-estate prices.”
Meanwhile, Fatima Bakery’s David says he is also having trouble retaining sales staff. He typically pays about Rs1,500-2,500 a month while sales attendants at some of the newer stores can get Rs5,000 a month, he says. “Sales girls are attracted by the sophisticated ambience of malls; they are not keen to work in old-fashioned stores such as ours.”
John Samuel Raja D. in Chennai, Aparna Harish in Kolkata and Ashish Sharma in New Delhi also contributed to this story.